Does the program New York is using to lure Amazon actually work?

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Rumors of Amazon’s second headquarters being split between New York City and Northern Virginia were confirmed Tuesday in a joint statement from Gov. Andrew Cuomo and Mayor Bill de Blasio and a release from the company. While details of the incentives package offered by New York continue to emerge, one thing is clear – Amazon will receive most of its tax breaks through the Excelsior Jobs Program.

Amazon will bring what it says will be more than 25,000 new jobs and $2.5 billion in investments when it opens its new headquarters in Long Island City, Queens, but New York won’t reap those benefits without paying a price of its own. The state has offered the company an estimated $1.5 billion in tax breaks, and $1.2 billion of that total will come through the Excelsior Jobs Program.

While some have criticized the size and scope of the tax breaks being offered to Amazon, the bulk of the incentives will actually come not from any specific subsidies for Amazon in particular, but through Excelsior, a program that was created by a law approved by the state Legislature. Still, the hefty sum exceeds anything Excelsior has offered in the past, raising questions about just how beneficial the program is.

What is the Excelsior Jobs Program?

First introduced to replace the Empire Zones Program in 2010, Excelsior was created to build up industries including biotechnology, manufacturing and clean energy by offering tax breaks to businesses that introduce new jobs and a significant investment in the region.

The incentives offered by the program include a direct subsidy of 6.85 percent of wages for every new job created, and a 2 percent tax credit for eligible investments. A “job growth track” comprises 75 percent of the program, while the other 25 percent is set aside for the “investment track” firms that meet the minimum job retention criteria, make significant new capital investments in a New York facility and meet a benefit-cost threshold of at least $10 of investment and new wages for every $1 of tax credit, according to the Empire State Development Corporation, the organization that oversees Excelsior.

How much does Excelsior cost?

“The actual cost of Excelsior has been around $160 to $180 million per year,” estimates Riley Edwards, a research associate at the Citizens Budget Commission. The program has a cap of $183 million this year, and is set to decline to $133 million in 2022 and $83 million in 2023. That may become a problem, considering the total of what has been offered to Amazon is much, much more than that.

As the annual cap is set in law, and is ultimately scheduled to decrease to $36 million by 2024, the state Legislature will have to approve an increase, and it’s likely that a proposal would face some scrutiny, given the resistance policymakers like state Sen. Michael Gianaris have shown to the Amazon deal.

“I think this sets a worrying precedent that one company can come in and be promised a raise in the cap, a significant increase in the cap,” Edwards said. “That's not something we want to continue doing every time a company comes in that isn't accommodated under the current cap and wants to receive more benefits than what is currently offered. These caps are set for a reason.”

However, because 25,000 jobs are scheduled to be introduced over the next 10 years, the $1.2 billion offered through Excelsior could be spread out over many years, and is not required up front.

Is Excelsior actually successful in bringing new jobs to New York?

Excelsior is designed to hold companies accountable for their promises to bring jobs and investments to New York, a feature even critics say legitimizes the program. “It is a tax credit after the fact, so after a job has actually been created, the company receives the money, which is in contrast to some other ways the state does economic development, where the money is given upfront and there's no accountability for whether the promised growth actually happens,” Edwards said.

Are these tax breaks worth the cost to taxpayers?

“Total waste of money,” John Kaehny, executive director of Reinvent Albany, a budget watchdog group, said of Excelsior. “Our feeling, very strongly, is that Amazon would have come to New York City regardless of the subsidies offered, and that those are icing on the cake, and they're primarily motivated by the governor's desire to have a story to tell that he landed this big fish.”

Cuomo and the Empire State Development Corporation did not immediately respond to requests for comment.

When Amazon first asked for bids, the company specified that it was looking for locations with good transportation and a talented pool of highly skilled workers. “I really don't think Amazon made their decision to come to New York based on incentives,” said Jonathan Bowles, executive director at the Center for an Urban Future. “I think they are coming here because of the access to talent that New York offers.”

Because of the design of Amazon’s original call for proposals for its new headquarters, most bids were blind, and even with an inherently strong contender like New York City, Cuomo and De Blasio may have felt pressure to sweeten the deal. “It's not surprising that economic development officials in New York and in other cities and states decided they've got to woo Amazon,” said Bowles. “If that was the goal, it was smartly played by Amazon. I get where the state economic development people are coming from. It's important for New York to land Amazon.”

Still, it’s not clear how valuable the Excelsior tax credits were in Amazon’s decision. Some are certain the program had no value at all. “We don't think they're decisive,” Kaehny said of the subsidies offered by Excelsior. “We'd rather just see the program go away.”

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As founder and research director of the Empire Center for Public Policy, E.J. McMahon is a go-to expert on budget plans and policy proposals. His organization promotes greater transparency, accountability and fiscal responsibility in state government, which often puts him at odds with lawmakers and the governor. McMahon previously worked as a journalist in Albany, as an Assembly Republican staffer and a budget adviser for almost 30 years, giving him great insight into the goings-on in the Capitol.